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Congress Revisits Debt Limit

Legislators unlikely to decide on whether to extend $3 trln in tax cuts until after the election.

Congress will joust over a symbolic vote on the U.S. debt limit this week while a decision on whether to extend $3 trillion in tax cuts into 2013 probably will wait until after the November election.

Democrats and Republicans will debate Medicare cuts that wouldn’t take effect for years, though they are unlikely to resolve what to do about spending reductions set for next January. The only major bill to clear Congress before the elections may be a plan to extend a payroll tax cut through the rest of 2012.

“We just have very different ideas on how to address these issues,” House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, said in an interview.

The House returns today from its holiday break and plans to vote on the debt limit tomorrow. Senators come back to Washington Jan. 23. Edward Kleinbard, former staff director of the congressional Joint Committee on Taxation, said lawmakers probably will focus more on wooing voters than addressing a budgetary train wreck coming at year’s end. That’s when former President George W. Bush’s tax cuts, extended by President Barack Obama in December 2010, are set to expire and $1 trillion in automatic spending cuts will start.

“I expect a great deal of hot air to be expended but nothing substantive to happen” before the election, said Kleinbard, now a law professor at the University of Southern California in Los Angeles.

The fate of those tax-and-spending questions will be decided by the election, meaning that much of lawmakers’ debate this year will aim to underscore differences between the parties, not muddle the picture with compromises, he said.

“The country is going to have to make a choice,” Ryan said. What Congress and Obama “will probably accomplish is framing the choice for the country to make in 2012.”

First up is a debt-limit debate that will be largely political theater. Under a budget agreement hatched out last year, Congress created a mechanism that in effect lets Obama unilaterally lift the legal cap on borrowing.

House Republicans plan to adopt a resolution tomorrow rejecting Obama’s Jan. 12 request to raise the debt limit by $1.2 trillion, though the measure will die either in the Senate or by presidential veto. That will allow Obama to lift the cap on his own after Republicans have gone on record against it.

“Congress can’t keep rubber-stamping President Obama’s requests to increase the debt ceiling,” Senator Kelly Ayotte, a New Hampshire Republican, said in a statement.

‘Duck Responsibility’

Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, called the debt vote a “political kabuki dance” that “allows a lot of Republican members to duck responsibility for the tax and spending decisions that have been made by the Congress.”

Obama’s annual budget request due Feb. 6 will probably restate previous proposals, administration officials have said, including higher taxes for the wealthy. The president also proposes to consolidate six agencies dealing with trade and commerce.

House Republicans plan to follow with a budget plan reprising their call last year to cut taxes and overhaul Medicare. Though the likelihood of reaching agreement with the Democratic-dominated Senate is slim, Ryan said, “We simply owe it to the country to show how we would do things differently.”

A proposal to continue for the rest of 2012 a 2-percentage point cut in the payroll tax, which expires Feb. 29, might be the last major bill to clear Congress before November -- if lawmakers can agree on how to finance it.

The parties remain far apart on where to find about $150 billion to pay for the tax break for workers. Democrats support a surcharge on millionaires, while Republicans have proposed raising Medicare premiums for wealthier seniors, reducing aid to the jobless and extending a pay freeze for federal workers.

Even tougher work is months ahead, when more than 100 tax cuts totaling $3 trillion are set to expire at the end of December. Among them are the Bush-era income-tax cuts, reductions in capital gains, dividend and estate tax rates, and a number of business tax breaks.

Further, $1 trillion in automatic spending cuts are scheduled to start in 2013. Congress enacted the reductions last year in an unsuccessful bid to push a congressional supercommittee to find another way to cut the deficit. The Pentagon’s budget will be chopped by 10 percent, Medicare spending will be cut by 2 percent and hundreds of other programs will be reduced by 8 percent.

“The question is whether our political system can make it into an opportunity to come to grips with the unavoidable,” said former Congressional Budget Office Director Bob Reischauer.

Promoting Gridlock

Election-year politics aren’t all that’s promoting gridlock. Congress’s calendar offers few chances to compel lawmakers to compromise. Last year, lawmakers had to vote to raise the debt limit and pass bills to keep the government operating, which gave Republicans opportunities to force cuts. This year, lawmakers won’t need to pass any budget bills until the end of September.

“There is not the same opportunity for hostage-taking that we saw this past year,” said Stan Collender, a former congressional budget aide.

The parties’ tax-and-spending proposals will serve a purpose even if they go nowhere before November, said Representative Mick Mulvaney, a South Carolina Republican.

“One of the roles of the House this year is being a messenger for the Republican party and letting people know if you give us the levers of power, if you give us control over the Senate and the White House, here is what we will do,” Mulvaney said. “This will be the year of ideas.”

Bloomberg News

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